Kinross Gold Corporation (TSX: K) (NYSE: KGC) announced its results for the second-quarter ended June 30, 2021.
2021 second-quarter highlights:
|Q2 2021 results||First six months 2021 results||Revised
|Gold equivalent production1
|Production cost of sales1, 2
($ per Au eq. oz.)
|All-in sustaining cost1, 2
($ per Au eq. oz.)
|Capital expenditures||$205.4 million||$409.6 million||$900 million|
“During the second quarter, Kinross continued to generate robust free cash flow, which more than doubled compared with the previous quarter. Our excellent free cash flow, as well as the strength of our investment grade balance sheet and growing production profile, underpin today’s announcement of a share buyback program and our continuing quarterly dividend, which supports our commitment to enhance shareholder value.
Our future growth strategy is also advancing well, with Tasiast 24k and La Coipa on schedule to be completed in mid-2023 and mid-2022, respectively. The Manh Choh, Udinsk and Lobo-Marte project studies are all proceeding as planned. Additionally, our global portfolio is on track to meet our revised production guidance for the year.”
Despite the impact of the Tasiast mill fire on our 2021 production and cost guidance, we continue to expect our production to increase to 2.7 million in 2022 and 2.9 million ounces in 2023. Our investigations regarding the mill fire have been encouraging and we expect the mill to restart in Q4 2021, at a lower cost than initial estimates. We also completed a definitive agreement with the Government of Mauritania to provide enhanced certainty on Tasiast’s economics.”
“We were also pleased to release our Sustainability Report, which provides a transparent account of our strong ESG performance, as well as our inaugural Climate Report, strengthening our reporting in this important area.”
Summary of financial and operating results
|Three months ended||Six months ended|
|June 30,||June 30,|
|(unaudited, in millions of U.S. dollars, except ounces, per share amounts, and per ounce amounts)||2021||2020||2021||2020|
|Total gold equivalent ounces(a)|
|Attributable gold equivalent ounces(a)|
|Production cost of sales||$||460.0||$||428.5||$||879.9||$||849.8|
|Depreciation, depletion and amortization||$||225.8||$||210.4||$||432.8||$||403.5|
|Reversals of impairment charges – net||$||–||$||48.3||$||–||$||48.3|
|Net earnings attributable to common shareholders||$||119.3||$||195.7||$||268.8||$||318.4|
|Basic earnings per share attributable to common shareholders||$||0.09||$||0.16||$||0.21||$||0.25|
|Diluted earnings per share attributable to common shareholders||$||0.09||$||0.15||$||0.21||$||0.25|
|Adjusted net earnings attributable to common shareholders(b)||$||156.5||$||194.0||$||349.3||$||321.4|
|Adjusted net earnings per share(b)||$||0.12||$||0.15||$||0.28||$||0.26|
|Net cash flow provided from operating activities||$||388.2||$||432.8||$||668.0||$||732.4|
|Adjusted operating cash flow(b)||$||363.8||$||416.9||$||763.4||$||835.5|
|Free cash flow(b)||$||182.8||$||218.5||$||258.4||$||326.7|
|Average realized gold price per ounce(b)||$||1,814||$||1,712||$||1,800||$||1,648|
|Consolidated production cost of sales per equivalent ounce(c) sold(b)||$||834||$||728||$||797||$||742|
|Attributable(a) production cost of sales per equivalent ounce(c) sold(b)||$||830||$||725||$||793||$||739|
|Attributable(a) production cost of sales per ounce sold on a by-product basis(b)||$||802||$||707||$||765||$||722|
|Attributable(a) all-in sustaining cost per ounce sold on a by-product basis(b)||$||1,048||$||971||$||1,001||$||976|
|Attributable(a) all-in sustaining cost per equivalent ounce(c) sold(b)||$||1,069||$||984||$||1,022||$||988|
|Attributable(a) all-in cost per ounce sold on a by-product basis(b)||$||1,364||$||1,208||$||1,321||$||1,226|
|Attributable(a) all-in cost per equivalent ounce(c) sold(b)||$||1,376||$||1,217||$||1,334||$||1,233|
|(a)||“Total includes 100% of Chirano production. “Attributable” includes Kinross’ share of Chirano (90%) production and costs, and Manh Choh (70%) costs.|
|(b)||The definition and reconciliation of these non-GAAP financial measures is included on pages 15 to 21.|
|(c)||“Gold equivalent ounces” include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the second quarter of 2021 was 68.05:1 (second quarter of 2020 – 104.49:1). The ratio for the first six months of 2021 was 68.19:1 (first six months of 2020 – 98.85:1).|
|(d)||“Capital expenditures” is as reported as “Additions to property, plant and equipment” on the interim condensed consolidated statement of cash flows.|
The following operating and financial results are based on 2021 second-quarter gold equivalent production. Production and cost measures are on an attributable basis:
Production1: Kinross produced 538,091 Au eq. oz. in Q2 2021, compared with 571,978 Au eq. oz. in Q2 2020. The decrease was mainly due to lower production at Tasiast, Bald Mountain and Kupol, partially offset by higher production at Paracatu and Fort Knox.
Average realized gold price2: The average realized gold price increased 6% to $1,814 per ounce compared with $1,712 per ounce for Q2 2020.
Revenue: Revenue was $1,000.9 million in Q2 2021, largely in line with $1,007.2 million in Q2 2020.
Production cost of sales1, 2: Production cost of sales per Au eq. oz. was $830 in Q2 2021, compared with $725 per Au eq. oz. in Q2 2020, mainly due to higher costs at Paracatu, Tasiast and Round Mountain.
Production cost of sales per Au oz. on a by-product basis was $802 in Q2 2021, compared with $707 per Au eq. oz. in Q2 2020, based on attributable gold sales of 532,636 and attributable silver sales of 1,033,171 ounces.
Margins3: Kinross’ attributable margin per Au eq. oz. was $984 for Q2 2021, compared with a Q2 2020 margin of $987 per Au eq. oz.
All-in sustaining cost1, 2: All-in sustaining cost per Au eq. oz. was $1,069 for Q2 2021, compared with $984 per Au eq. oz. in Q2 2020, mainly due to higher cost of sales per Au eq. oz. sold and lower production.
Operating cash flow: Adjusted operating cash flow2 was $363.8 million in Q2 2021, which decreased compared with $416.9 million in Q2 2020.
Net operating cash flow was $388.2 million for Q2 2021, compared with $432.8 million in Q2 2020.
Free cash flow2: Free cash flow was $182.8 million in Q2 2021, compared with $218.5 million for Q2 2020, mainly due to the decrease in operating cash flow.
Earnings: Adjusted net earnings2 were $156.5 million, or $0.12 per share, for Q2 2021, compared with $194.0 million, or $0.15 per share, for Q2 2020, primarily due to a decrease in gold equivalent ounces sold and expected higher operating waste mined.
Reported net earnings4 were $119.3 million, or $0.09 per share, for Q2 2021, compared with $195.7 million, or $0.16 per share, for Q2 2020. The decrease was mainly due to lower operating earnings, partially offset by a decrease in income tax expense.
Capital expenditures: Capital expenditures decreased to $205.4 million for Q2 2021, compared with $214.3 million for Q2 2020, mainly due to less capital stripping activities at Bald Mountain, Round Mountain and Fort Knox, partially offset by increased spending at Tasiast, and the La Coipa, Lobo-Marte and Udinsk projects.
As of June 30, 2021, Kinross had cash and cash equivalents of $675.6 million, compared with $1,210.9 million at December 31, 2020. The decrease during the quarter was primarily due to the $500 million repayment of Senior Notes on June 1, 2021 and capital expenditures, partially offset by operating cash flow.
The Company had additional available credit of $1,563.6 million as of June 30, 2021, for total liquidity of approximately $2.2 billion.
The Company’s investment grade credit rating profile from the three major rating agencies has been further enhanced in 2021, with Moody’s Investor Services moving to a positive outlook earlier this year followed by an upgrade from Fitch Ratings in Q2 2021.
Effective July 23, 2021, the Company amended its $1,500 million revolving credit facility to extend the maturity date by approximately two years, from August 10, 2024 to July 23, 2026.
Share buyback and dividend
Kinross is committed to enhancing shareholder returns through programs such as a share buyback and its quarterly dividend, which are underpinned by the Company’s investment grade balance sheet, strong free cash flow and growing production profile from its global portfolio.
On July 28, 2021, Kinross received approval from the Toronto Stock Exchange to establish a normal course issuer bid (“NCIB”) program. Under the NCIB program, the Company is authorized to purchase up to 63,096,676 of its common shares (out of the 1,261,933,539 common shares outstanding as at July 27, 2021) representing 5% of the Company’s issued and outstanding common shares, during the period starting on August 3, 2021 and ending on August 2, 2022.
As part of its continuing quarterly dividend program, the Company declared a dividend of $0.03 per common share payable on September 2, 2021 to shareholders of record on as of August 19, 2021.
Tasiast mill fire update
Kinross continues to prioritize work to re-start the Tasiast mill after the fire on June 15, 2021. The Company has assembled a team to coordinate the mill re-start work with the 24k project to evaluate synergies.
To date, the results of the investigations and mechanical inspections related to the mill fire have been encouraging. The mill is in good working condition and has been turned during testing using the gearless motor drive.
See the following link for a video of the mill re-start test: https://youtu.be/isDf3_YKWko
The mill shell and discharge bearing, which are also key areas in evaluating the time and cost required to re-start the mill, are also in good condition and support an expected mill re-start in Q4 2021. Mill re-start cost estimates were lowered to up to $35 million, compared with the initial estimate of up to $50 million. A new trommel screen has been ordered and the expected delivery supports the planned timeline.
The Company’s comprehensive response to the COVID-19 pandemic continued to maintain the safety of its global workforce and mitigate operational impacts. Kinross is seeing increased potential to return to pre-pandemic operating environments at most of the jurisdictions where it operates, in line with public health guidelines and as a result of lower COVID-19 rates.
Mine-by-mine summaries for 2021 second-quarter operating results may be found on pages 10 and 14. Highlights include the following:
Paracatu continued to perform well in Q2 2021, with production increasing quarter-over-quarter and year-over-year mainly due to the timing of ounces processed through the mill, largely offset by lower throughput and grades. Cost of sales per ounce sold was higher for both comparable periods primarily as a result of higher operating waste mined, increases in maintenance and power costs, and inflationary pressures on consumables and labour.
At Round Mountain, production was lower quarter-over-quarter and year-over-year mainly due to deferred mining in the north wall of the Phase W area as a result of wall instability detected in Q1 2021, as well as anticipated lower mill grades. Proactive mitigation efforts have been successful and stabilized the wall. These measures include dewatering and moving waste material at the top of the pit, which has resulted in some unplanned gold recoveries. Mining continued in other parts of the pit during the quarter. The mine optimization program – which is evaluating further de-risking initiatives to enhance the stability of the wall and the Phase S pushback – is advancing well and is expected to be completed in Q2 2022. Cost of sales per ounce sold was largely in line with the previous quarter and increased year-over-year mainly due to lower production, higher taxes and higher operating waste mined.
At Fort Knox, production was higher compared with Q1 2021 and Q2 2020 primarily due to an increase of ounces recovered from the new Barnes Creek heap leach pad. Cost of sales per ounce sold increased compared with the previous quarter mainly due to higher operating waste mined, but decreased compared with the previous year primarily due to more lower-cost ounces produced from the new Barnes Creek heap leach pad.
At Bald Mountain, production was lower compared with Q1 2021 and Q2 2020 mainly due to the timing of ounces recovered from the heap leach pads as the operation mined through carbonaceous material in the Vantage pit at the beginning of the quarter. Cost of sales per ounce sold was higher quarter-over-quarter mainly as a result of lower production and higher fuel costs. Cost of sales per ounce sold also increased year-over-year mainly due to lower production, higher operating waste mined and higher reagent costs.
Kupol and Dvoinoye continued their consistent and solid performance, with production and cost of sales per ounce sold in line with the previous quarter. Production was lower than the previous year as a result of anticipated lower grades with the completion of mining activities at Dvoinoye. Cost of sales per ounce sold was slightly higher year-over-year mainly due to the lower production.
At Tasiast, production was lower quarter-over-quarter and year-over-year primarily due to the mill fire on June 15, 2021, with lower mill grades prior to the incident also contributing to the reduction. Cost of sales per ounce sold was higher versus both comparable periods mainly due to lower production and higher royalties. Increased maintenance costs also contributed to the year-over-year increase.
At Chirano, production was lower compared with Q1 2021 mainly due to lower grades from the underground deposit related to mine sequencing, which was partially offset by higher mill throughput. Production was largely in line year-over-year. Cost of sales per ounce sold was higher compared with Q1 2021 primarily due to lower production, and was higher year-over-year mainly due to contractor, maintenance and energy costs.
The Tasiast 24k project remains on schedule to increase throughput capacity to 24,000 tonnes per day by mid-2023. As previously disclosed, due to the impacts of the mill fire, the mine is now expected to reach 21,000 tonnes per day in Q1 2022. The first phase of the project is now 90% complete as only three days were lost due to the fire. Power plant construction continued to advance well and commissioning activities have commenced with the plant expected to be operational in late Q4 2021. The thickener is also advancing well, with hydro testing now completed.
Chulbatkan – Udinsk
Kinross continues to advance Udinsk, the first project that is expected to be developed on the larger Chulbatkan license. The project’s pre-feasibility study (“PFS”) is on track to be completed in Q4 2021 and is focused on fast-tracking construction. Kinross is targeting a declaration of mineral reserves at year-end following the expected completion of the PFS. Infrastructure work has also commenced, including establishing camp facilities on site. Work on a study to connect the project to the regional grid via a power line is advancing well. First production at Udinsk is anticipated to occur in 2025.
During the quarter, the Company completed a scoping study on the 70%-owned Manh Choh project in Alaska, located approximately 400 kilometres southeast of Fort Knox. With the exception of capital expenditures, the results of the scoping study are largely in line with the estimates at the time of acquisition for the synergistic, low-cost, high-margin project. The initial scoping study capital expenditure estimate is $150 million, which has increased by approximately $50 million compared with assumptions at the time of acquisition (both on a 100% basis). The increase is in part due to strategic decisions that are expected to de-risk the project and improve operational cost efficiencies, including reducing the use of contractors. A better understanding of project site conditions such as topography and environment also contributed to the capital estimate increase. Manh Choh is now proceeding to a feasibility study, which is expected to be completed by the end of 2022, with production expected to commence in 2024.
Development work on the Gil satellite pits, which are located approximately 13 kilometres east of Fort Knox, is proceeding as planned, with production expected to commence in Q4 2021.
La Coipa Restart and Lobo-Marte
The La Coipa Restart project continues to advance well and is on budget and schedule to commence production in mid-2022, with pre-stripping progressing as planned. Fleet refurbishments are now complete, and plant refurbishments and mine road construction are both advancing well. The Company continues to study potential mine life extensions by incorporating adjacent deposits into La Coipa’s mine plan.
The Lobo-Marte feasibility study is advancing and is on schedule to be completed in Q4 2021. Permitting work is ongoing, including environmental studies and community consultations. The Company is targeting production to commence in 2027, subject to permitting and after the completion of mining at La Coipa, with construction potentially starting in 2025. Kinross continues to believe that Lobo-Marte has the potential to be a long-life, cornerstone asset with attractive costs.
Exploration activities during the first half of 2021 continued to focus on promising targets around current operations and areas where existing infrastructure can be leveraged. Highlights include:
Kupol: A total of approximately 22,200 metres has been drilled in the first half of 2021 in the Chukotka region. Targets at the south end of the Kupol vein were tested, intersecting narrow, but high grade veins. As part of the regional Kupol Synergy Zone of Influence project (“KSP”), which is targeting the 130 kilometres radius around Kupol based on an economic trucking distance to the mill, exploration camps were established at the priority Kayanmyvaam and Kavralanskaya licenses, located approximately 100 kilometres east and 100 kilometres south of Kupol, respectively. High grade targets were encountered in both areas and exploration will continue to focus on these targets for the rest of 2021, including regional geochemical and geophysical programs in support of drilling.
Chirano: Exploration at Chirano showed promising results during the first half of the year as the Company continued to target multi-year mine life extensions and additions to its mineral resource estimates at year-end. To date in 2021, a total of approximately 15,600 metres of drilling was completed.
At Obra, development of an exploration drift that is expected to provide optimized drilling positions to target high-grade plunging shoots is ongoing, and is scheduled to be completed in Q3 2021. To expedite drilling, a temporary drilling pad was built in June. The results of the first hole exceeded expectations with mineralized width greater than previously interpreted.
Underground drilling was also carried out at Suraw, Akoti South and Tano and surface drilling at the Mamnao West orebodies. Drilling at Akoti South has extended known mineralization to the immediate south of the reserve area, while at Tano, two mineralised west splays have been identified.
Chulbatkan-Udinsk: Exploration activities at Udinsk focused on an infill drilling program and completing the PFS geotechnical drilling program. On the larger Chulbatkan license, exploration drilling has commenced five kilometres northeast of the Udinsk resource pit, along the Chulbatkan Fault. Mineralization has been encountered, including on the hanging wall side of the fault. In the second half of 2021, surface exploration activities will include soil geochemical sampling and geophysical surveys within both the original Chulbatkan license area and the newer surrounding licenses acquired in late 2020.
Round Mountain: Drilling continued at Phase X, which is the northwest continuation of Phase W mineralization, with encouraging results. Exploration work is focused on infill drilling and extending the known mineralization, as well as improving the geologic model and assessing mine planning options with the goal of delineating high-grade material for potential underground mining. At Gold Hill, which is located approximately six kilometres north of the Round Mountain pit, a different style of mineralization is being targeted with high grade gold-silver veins extending to the west under cover. Approximately 3,000 metres have been drilled thus far in 2021 at Round Mountain.
Curlew Basin Exploration (“CBX”) Project: The CBX exploration program has focused on areas around the historic K2 mine, which is located approximately 35 kilometres north of the Kettle River mill. Exploration activities continue to target incremental high-margin ounces proximal to, and extensions of, the K2 and K5 deposits by constructing a series of exploration drifts to explore the highly prospective areas. Decline rehabilitation and development is ahead of schedule, with underground drilling expected to commence in Q3 2021, and continue into 2022. Other targets are currently being drilled from surface, including an extension to the known Marlin vein. Approximately 3,200 metres have been drilled in the first half of 2021.
Manh Choh: Exploration for near mine extensions has commenced at Manh Choh, and, in the first half of 2021, a total of approximately 3,900 metres of core drilling was completed at the East Peak, Forks, and Ridgeline targets, as well as four North Pit infill holes, which were extended for exploration purposes. Two of these holes intersected mineralization below the scoping study depth.
The following section of the news release represents forward-looking information and users are cautioned that actual results may vary. We refer to the risks and assumptions contained in the Cautionary Statement on Forward-Looking Information on pages 21 to 23.
The Company is on track to meet its revised 2021 production guidance of 2.1 million Au eq. oz. (+/- 5%), which was previously disclosed on June 21, 2021. Kinross continues to expect annual production to increase to 2.7 million Au eq. oz. (+/- 5%) in 2022 and 2.9 million Au eq. oz. (+/- 5%) in 2023, which was initially disclosed in October 2020.
Kinross has revised its 2021 production cost of sales guidance to $830 per Au eq. oz. (+/- 5%) compared with $790 per Au eq. oz. (+/- 5%) previously disclosed on February 10, 2021. The change is mainly as a result of impacts from the Tasiast mill fire, increased royalty costs due to higher gold prices, and industry-wide inflationary pressures. The Company expects 2022 cost of sales to benefit from the higher production outlook, along with lower cost ounces at Tasiast and La Coipa, and will continue to monitor inflationary pressures.
The Company has also revised its 2021 all-in sustaining cost guidance to $1,110 per Au eq. oz. (+/- 5%) from $1,025 per Au eq. oz. (+/- 5%), mainly due to changes to cost of sales guidance and the expected lower production for 2021.
Other operating costs are now expected to be approximately $285 million (+/- 5%) for 2021, compared with the previous guidance of approximately $150 million. The increase is mainly as a result of the impact of the Tasiast mill fire, including fixed costs incurred during the suspension of milling operations, mill re-start costs and wall instability mitigation measures at Round Mountain. Depreciation, depletion and amortization for 2021 is now forecast to be $410 per Au eq. oz. (+/-5%), compared with the previous forecast of $390 per Au eq. oz. (+/- 5%), primarily due to deferred production at Tasiast.
Kinross remains on track to meet its 2021 capital expenditures guidance of $900 million (+/- 5%).
Definitive agreement with Government of Mauritania completed
On July 15, 2021, the Company signed a definitive agreement with the Government of Mauritania that confirms the key terms of the agreement in principle signed on June 15, 2020.
The agreement underpins the ongoing partnership between Kinross and the Government. The Government has also expressed its full support for the Company’s efforts to re-start the Tasiast mill and is working with the Company on prioritizing efforts and processes to achieve this shared objective.
Kinross published its 2020 Sustainability Report on July 26, 2021, which details the Company’s strong performance across the areas of environmental stewardship, social engagement and governance over 2020.
Kinross’ ESG performance consistently ranks in the top quartile of its peer group, as measured by the S&P Corporate Sustainability Assessment (CSA), Sustainalytics, MSCI, ISS Oekom, Vigeo Eiris, CDP, and Refinitiv. Kinross was also recognized through inclusion in the S&P Sustainability Yearbook 2021, marking the eighth consecutive year in the industry’s top tier for ESG performance, and by MSCI for its “A” level rating.
The health and safety of its workforce remains Kinross’ first priority, and the Company reported 2020 safety rates that were among the lowest compared with its peers and on par with low risk, non-industrial sectors. Tragically, however, Kinross had an employee fatality at Round Mountain in November 2020, the first employee fatality since 2017, and in June 2021, Kinross also had an employee fatality at Chirano. Kinross continues to focus efforts on enhancing safety and risk management systems across its global operations.
Environmental protection and addressing the risks associated with climate change continue to be areas of focus for the Company. In line with the goals of the Paris Agreement, Kinross is committed to being a net-zero GHG emissions company by 2050, and is currently developing a strategy that will include tangible GHG reduction targets for 2030 that it expects to finalize by year-end. Kinross also published its inaugural Climate Report, following the Task Force on Climate-related Financial Disclosures (TCFD) recommendations to provide stakeholders with timely information about the Company’s efforts to address climate change and manage risk.
Consistent with its commitment to making a positive contribution in the communities where it operates, Kinross generated significant benefits through global spending of $3.4 billion in 2020. This included $357 million in payments to governments, $1.9 billion in payments to suppliers in host countries and $777 million in employee wages and benefits. Throughout the year, community investments supported over 939,000 beneficiaries.
Kinross also advanced its Inclusion and Diversity efforts, including supporting Canada’s BlackNorth Initiative, along with 450 other organizations, by setting out specific commitments to help build a more inclusive and diverse workplace. Kinross also maintained its Board of Directors diversity target of 33% women and increased the percentage of women in senior management roles in 2020 to 17%. Notably, 99% of Kinross’ employees are nationals of its host countries, as well as 87% of management.
The Company’s 2020 Sustainability Report follows the Global Reporting Initiative (GRI) standards for sustainability reporting, and was prepared largely in accordance with the GRI ‘Core’ option of reporting. It also serves as the Kinross’ Communication on Progress under the UN Global Compact (UNGC) to fulfill its commitment to report and identify content pertinent to the Ten Principles of the UNGC. For the second consecutive year, Kinross also reported, where possible, in alignment with the Sustainability Accounting Standards Board (SASB) Metals and Mining Standard.
About Kinross Gold Corporation
Kinross is a Canadian-based senior gold mining company with mines and projects in the United States, Brazil, Russia, Mauritania, Chile and Ghana. Our focus is on delivering value based on the core principles of operational excellence, balance sheet strength, disciplined growth and responsible mining. Kinross maintains listings on the Toronto Stock Exchange and the New York Stock Exchange
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We acknowledge the [financial] support of the Government of Canada.